Northern Hemisphere's record winter warmth slashes gas consumption: Kemp
LONDON, March 20 (Reuters) - The northern hemisphere has experienced the warmest winter on record, with the unusual warmth concentrated around the Atlantic Basin, which has produced an enormous surplus of gas and slump in prices since October.
Surface temperatures on land were +2.65°C above the 20th century average between December and February, according to data compiled by the U.S. National Oceanic and Atmospheric Administration (NOAA).
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Chartbook: Northern hemisphere winter 2023/24
Record warmth in the winter of 2023/24 beat previous highs of +2.44°C in 2019/2020 and +2.61°C in 2015/16 - also winters characterised by surplus inventories and slump in gas prices.
Global warming, strong El Nino conditions in the Pacific, a strongly positive North Atlantic Oscillation, and the solar activity cycle moving towards its 11-year peak, all contributed to exceptional warmth this winter.
NORTH AMERICA
Europe has received most attention because of the regional gas market's disruption following Russia's invasion of Ukraine, but the most abnormal weather occurred in North America.
Temperatures across North America were +3.43°C above the long-run average between December and February ("Climate at a glance", National Centers for Environmental Information, March 2024).
North America experienced record warm anomalies in both December (+4.66°C) and February (+3.59°C) slashing heating demand for both gas and gas-fired electricity.
U.S. gas inventories started the heating season just 64 billion cubic feet (bcf) (+2% or +0.24 standard deviations) above the prior 10-year seasonal average on Oct. 1.
Inventories were still only 129 bcf (+4% or +0.46 standard deviations) above the 10-year seasonal average at the end of November.
But the surplus had swelled to 307 bcf (+10% or +1.15 standard deviations) by the end of December following a run of abnormally warm weather.
Colder temperatures caused the surplus to narrow temporarily in January, particularly during the very cold spell between Jan. 13 and Jan. 22.
But the surplus ballooned again to 519 bcf (+29% or +1.31 standard deviations) by the end of February as temperatures reverted to well above normal.
With mild weather continuing into March the surplus had bloated to an enormous 606 bcf (+35 or +1.35 standard deviations) by March 8.
U.S. front-month futures prices averaged almost $3.19 per million British thermal units in October, putting them in the 13th percentile for all months since 1993 once inflation is taken into account.
By February average inflation-adjusted prices had fallen to a record low of $1.80 as persistent warmth and the relentless build up of surplus inventories sent the market into a tailspin.
EUROPE AND ASIA
Europe also experienced a very warm winter, with temperatures +2.73°C above the long-run average, making the winter the second warmest on record after 2019/20 (+3.32°C).
A strongly positive North Atlantic Oscillation directed strong westerly winds into Northwest Europe bringing lots of warm and moisture-laden air from the Atlantic.
The temperature anomaly may not have been as extreme as North America, but coupled with prices well above the pre-invasion average, it was enough to leave the region with record seasonal inventories by the end of February.
Inventories across the European Union and the United Kingdom started the heating season 167 terawatt-hours (TWh) (+18% or +1.70 standard deviations) above the 10-year average on Oct. 1.
By Feb. 29, the surplus had swollen to 269 TWh (+60% or +2.08 standard deviations), according to data from Gas Infrastructure Europe.
Europe's front-month futures averaged almost 46 euros per megawatt-hour (88th percentile for all months since 2010 in real terms) in October, but had slumped to an average of just 26 euros (48th percentile) in February.
By contrast to North America and Europe, winter temperatures across Asia were closer to normal, at least for the last two decades.
Asia's temperatures averaged +1.80°C above the long-term average, but that made it only the 10th warmest winter on record.
OODLES OF GAS
North America, Europe and Asia combined accounted for almost two-thirds of global gas consumption in 2022 ("Statistical review of world energy", Energy Institute, 2023).
North America and Europe alone accounted for 40% of worldwide consumption, with a heavy weighting towards the winter months because of heating demand.
Exceptional warmth around the Atlantic Basin in winter 2023/24 therefore occurred in precisely the area to maximise the impact on gas consumption, inventories and prices.
When historians ask why Russia's invasion of Ukraine and sanctions imposed in response did not cause shortages and a more severe and prolonged spike in prices, they are likely to cite extraordinarily warm winters in both 2022/23 and 2023/24 rather than policy actions as the primary reason.
Europe's gas consumers got very lucky in the winter of 2023/24 and have seen prices normalise. For the same reason, Asia's importers are now benefiting from improved availability and much lower prices.
Conversely, North America's producers have been pushed into a deep slump as they struggle to sell in a market awash with too much gas.
Next winter is very likely to be colder in North America and Europe.
In the meantime, lower prices will result in slower or no production growth in the United States, which should cause the market to tighten gradually over the next 12 months.
John Kemp is a Reuters market analyst. The views expressed are his own.
(Editing by David Evans)